Article
Written by Kady Potter
Posted on 22/09/2014

Britain’s audit watchdog makes changes to corporate governance

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The Financial Reporting Council (FRC) has announced a number of changes to the code of corporate governance. The aim is to make UK companies a safer bet for investors, through greater transparency of information and regular business assessments.

 

All companies which have a Premium Listing of equity shares are required by the UK Listing Authority (UKLA) to report on whether they have complied with the code. They must also explain the reasoning to shareholders if, for any reason, the code has not been followed.

Proposed revisions to the code were first published in April, following consultations in October and November 2013.

Companies must demonstrate self-belief

The onus will be placed on companies to “robustly assess” their primary risks and explain how each one is being managed or mitigated. They will also need to state whether the business can continue operating and meet its responsibilities from its current position. That claim must come with a specified time period for how long those circumstances remain valid, and the FRC says the stated period should be at least 12 months.

The wide view

The FRC is attempting to encourage long-term planning by both companies and investors. New rules on shareholder engagement and remuneration policies indicate this approach.

Executive pay is set to be curtailed, with the FRC recommending holding back or recouping rewards for employee contributions. Companies will also need to keep their shareholders fully informed, and to demonstrate how they will communicate effectively when a majority votes against a business decision.

Changes which start at the top

Confirming the view that corporate governance must be implemented at all levels of a business, the new FRC code puts responsibility on individual board members. As the April report stated: “Absolutely key in these endeavours are the leadership of the chairman of a board, the support given to and by the CEO, and the frankness and openness of mind with which issues are discussed and tackled by all directors.”

All updates made to the code will come into effect for accounting periods which begin on or after October 1st. A further review will take place in 2016.

 

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